Small Business Funds Poised for Release

The $30 billion small business stimulus fund promised by President Obama in early 2010 is finally about to be unleashed for use by the nation’s smaller banks.

According to a BusinessWeek.com article, banks have made an impressive showing in terms of applications for the new program. Small Business Lending Fund program director Jason Tepperman said he was “pleasantly surprised” at how many lenders have applied since last month when applications first became available.

The program funds are available to the 7,000 banks across the country with assets of less than $10 billion, although those on the Treasury “troubled” list may not apply. Even the 473 banks that still have TARP (Troubled Asset Relief Program, the government’s first bailout effort) funds can be eligible. Taking part in this program would decrease their annual dividend payments of 5 percent for those TARP funds as they increase their small business lending, to a rate as low as 1 percent. Banks can also keep the new money for a longer period – four and a half years – without penalty, giving them plenty of money to grow in that time. After that time, the rate will rise to 9 percent.

“For institutions that have an interest in increasing their small business lending, they’re likely to find this an attractive opportunity to refinance” TARP capital, said Tepperman.

Although the Treasury officials themselves have declined to comment, Congressional estimates say that this program could create as much as $300 billion in new small business loans. As small businesses are a major driving factor of our economy that would be good news.

There are some skeptics however. Chris Jones, an attorney who advises banks in Kansas City, Mo. doesn’t think there will be enough interest in the money.

“The loan demand [from small businesses] has to be there for it to work,” he said in that same BusinessWeek article. What’s more, he’s worried the government program may encourage bad loans. “What got us into this mess to begin with was creating demand where it didn’t exist.”

Others, including plenty of small business owners, argue that there is plenty of demand, but that lending standards have been too strict to get their hands on capital. We’ll see how it all plays out in March, when the last applications will be accepted.